Standard & Poor’s puts CSAV on “credit watch”

Standard & Poor’s puts CSAV on “credit watch”

Standard & Poor’s puts CSAV on “credit watch”

Standard & Poor’s said it has placed Chilean container shipping company Compa''a Sud Americana de Vapores S.A. (CSAV) on CreditWatch Negative.
   The New York-based credit rating agency's action was for the ‘BB+’ long-term corporate credit and senior unsecured debt rating.
   “The action reflects the deeper-than-expected deterioration in the global containership market, which for CSAV resulted in an extremely poor performance that substantially weakened its credit metrics and liquidity position,” Standard & Poor's said. While noting the carrier planned to boost equity by $200 million over the next two years, “we are concerned about the company’s ability to improve its profitability and cash-flow generation, which is currently negative.
   “Our concerns stem mostly from the company’s chartering strategy and its sizable investment program in very tough market conditions. The current market affects mostly long-haul routes such as those covered by one of CSAV’s largest operating subsidiaries, Norasia Container Lines Ltd.,” S&P said. “We expect to resolve the CreditWatch within the next 90 days and believe there may be a downgrade of more than one notch.”
   Meanwhile, Santiago newspaper El Mercurio reported last week that Jaime Caro Valdez has been named to succeed his brother Ricardo Claro Valdes as CSAV president.
   Ricardo Claro Vald's, 74, died last month after suffering a heart attack.
   According to the AXS-Alphaliner, CSAV together with affiliates Norasia, Libra and Libra Uruguay, is the 16th-largest container carrier in the world with a fleet of 93 ships with capacity of 290,175 TEU. Alphaliner said the company owns four ships, and charters 89, but has 25 vessels on order.
   S&P said its ratings on CSAV “reflect its exposure to the highly cyclical containership industry, the company’s aggressive fleet composition, and weaker credit measures than its peers on a lease-adjusted basis.”
   On the plus side it said, “CSAV’s strong market position in the Americas, its smooth debt profile, and its adequate but rapidly deteriorating liquidity position partially offset these factors.” S&P said CSAV is the largest containership company in Latin America, with services covering east-west, intra-America, and Asian routes.
   “Given the share of its fleet under long-term charter contracts, the company’s profit margins are more exposed to sudden market downturns than are those of competitors with larger weights of owned fleet,” S&P claimed.
   Last week CSAV announced a new Euroandes Service offering weekly calls between ports in North America, Central America, Caribbean and South America, after three other carriers — CMA CGM, Hapag-Lloyd and Hamburg Sud — announced they were breaking away from CSAV to start their own service.
   The new CSAV service will start operations on Jan. 12 in Rotterdam, and deploy eight vessels of 2,500 TEUs and will run on weekly, fixed-day basis. Port rotation will be 56 days with direct calls at Rotterdam, Tilbury, Hamburg, Antwerp, Port of Spain, Cartagena, Callao, San Antonio Callao, Buenaventura, Cartagena and Kingston.
   “During the second half of 2008, traffic has substantially declined as a consequence of the global economic downturn. We expect this trend to continue in the short to medium term,” S&P said. “This factor, combined with high order book levels throughout the industry has started to affect tariff levels in all trades. The competitive trades, such as those covered by CSAV’s largest subsidiary Norasia Container Lines Ltd., are most affected.”
   The company reported a loss in earnings before interest, taxes, depreciation and amortization (EBITDA) of $35 million for the quarter ended Sept. 30, compared to positive $58 million for the same period of 2007, reflecting the current adverse market conditions in the containership industry, S&P said. “Consequently, during the same period, CSAV’s funds from operations fell sharply to negative $5 million, compared to $65 million for the same period of 2007. We expect credit metrics to remain weak and the pressure on the liquidity position to cover cash short falls to continue.
   CSAV’s free cash-flow generation resulted in a deficit for the most recent quarter of about $97 million, and $230 million when considering the 12 months through Sept. 30. The significant cash drain the company experienced during the 12 months also resulted from the company’s sizable capital expenditures program of $310 million during that period, S&P said.
   CSAV's capital expenditures include four 12,000-TEU vessels and three vessels of 6,300 TEUs each.
   “This represents a significant addition to its currently owned fleet capacity. We expect this to give the company the flexibility to better adjust its fleet composition using the larger and more efficient vessels on the most competitive routes,” S&P said. ' Chris Dupin